EDITOR: | October 3rd, 2014 | 1 Comment

Uranium Stocks Remain Near 52-Week Lows Despite Bounce in Spot Price

| October 03, 2014 | 1 Comment
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Two weeks ago I wrote about the notable uranium spot price movement which at the time was up 30% from a low of $28/lb. I posed the question if the move was a dead cat bounce or something more substantial. I opined that I needed to see confirmation of the spot price move via the long-term contract price moving up, it was unchanged. Therefore, I surmised that until the long-term price moved, the spot price action was certainly a good sign and positive for sentiment, but not the start of something big. One of my points in that piece was that uranium stocks, companies like UR-Energy Inc. (NYSE: URE), Uranerz Energy Corp. (NYSE: URZ) and NexGen Energy Ltd (TSXV: NXE) did not bite on that 30% spot price bounce. Did these companies, and the investors in them, know something that the spot market the rest of us did not. Yes and no.

Spot price up considerably, uranium stocks near lows

Some companies certainly had an inside peak at the market due to ongoing negotiations with utilities about contracts such as the 5-year from 2017-2021. For example, URG is keenly aware of what’s happening as an In Situ Recovery, “ISR” producer that could possibly expand operations with a stronger uranium price. Yet, it did not comment on the price move, probably because the long-term price failed to budge and utilities did not flood the market with requests for proposals. In the past two weeks the spot price has stalled, perhaps down $1/lb. This is not a bad thing, some call it, “taking a breather.” Of course, if the price starts to move back down towards $30/lb, then all bets are off. But I noticed a curious thing, not only did uranium stocks fail to move higher in recent months, many are at or near 52-week lows.

This suggests that the risk/reward proposition of owning select names has improved. Starting with UR-Energy, that stock is down 54.65% from its 52-week high. Yet, ISR producers tout themselves as the lowest cost producers in the U.S. I’m surprised that none of the ISR players had much of an upside move. Uranerz was down from US$ 1.50/shr to US$ 1.20/shr as the spot price rose over the past few months. Now that the spot price is stalled near its recent peak, Uranerz stock has declined to US$ 1.02. This is a stock with a 52-week high of US$ 1.98/shr. ISR player Uranium Energy Corp. (NYSE: UEC) is trading at a price of US$ 1.14/shr down from its yearly high of $2.30. The list goes on.

Risk/reward of owning select uranium juniors moving in your favor

Moving on to conventional miners consider NexGen Energy Ltd, which had company-making news from spectacular drill results in late August. At the time the stock traded up from C$ 0.34/shr to C$ 0.55/shr within days. However, despite the rise in the uranium spot price, and subsequent strong confirmatory drill results NexGen’s stock is back down to C$ 0.41/shr. Anfield Resources (TSXV:ARY) also reported very important news with its acquisition of Uranium One’s conventional Shootaring uranium mill and a substantial amount of NI 43-101 uranium resources, as well as significant exploration potential. That stock is down from a 52-week high of C$ 0.95/shr to C$ 0.36/shr. The Global X Uranium ETF (NYSE: URA) is off 35.2% from it’s peak and just 1.39% above its 52-week low.

Yes, the uranium sector is in shambles. This past month many graphite stocks got killed as well. It’s well known that natural resources stocks, especially juniors on the Toronto Venture exchange, are in year 3 of a down draft with only a few short blips to the upside. We last saw a decent move in the first quarter of 2014 leading up to PDAC Toronto. It’s difficult to say when the slaughter will end. Some pundits say now is the time to buy, when there’s, “blood in the streets” or calling upon similar catch phrases. Others say to, “keep some powder dry,” and wait for signs of capitulation. I would argue that some stocks have already capitulated!

In any event, select uranium stocks will double or triple or more in the next bull market, timing unknown. Uranium stocks feel cheap because the spot price is up meaningfully from what looks to be a low, yet stocks are near 52-week or even all-time lows. Yes, there are plenty of things to worry about. Capital raises at depressed levels are a key concern. However, some of the uranium companies have been through that exercise and have decent liquidity. Today is a time to revisit the uranium stocks and give an honest grade to management, have they managed the downturn reasonably well, been able to fund and advance projects, are they living to fight another day? Or, have they destroyed shareholder value and simply collected salaries and stock options for the last 3 years?

Conclusion

There are good uranium companies out there that have moved the ball forward and are worthy of further investigation. Now is a good time to do one’s homework. Management teams are open to incoming investor phone calls, call them up and talk. Call not just one management team, but several. Compare what they have to say about the uranium price. No one knows exactly where it will go or how fast, but management’s views on the uranium price will tell one how aggressive they might be going forward. Ask about the company’s cash burn rate, about each company’s Plan B. I said at the beginning of this paragraph that there are good uranium stocks. There are obviously bad ones as well. Over the next several quarters, the bad ones will become more and more apparent and some will throw in the towel. This is meaningful, because when money starts to pour back into the sector, there will be fewer names to choose from. At that point we could start to see a wave of M&A in the sector. Better times are ahead, now’s the time to be making one’s wish list.


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Comments

  • Stephan B. Feibish

    What are the chances the financiers smell blood in the water and are ready to let these companies go under? Then pick up good properties for pennies on the dollar.

    October 10, 2014 - 12:25 PM

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